Minimum Wage Increases Promote Jobs: Study

The Huffington Post, November 1, 2010

By William Alden

Increasing the minimum wage does not aggravate unemployment, despite conventional wisdom to the contrary, a new study shows (hat tip to Economix).

Even though some economists have argued that paying workers more tends to discourage hiring, wage increases actually leave employment unaffected or even improved, argues the study, authored by Arindrajit Dube of the University of Massachusetts Amherst, T. William Lester of UNC Chapel Hill and Michael Reich of UC Berkeley. "We actually found absolutely no evidence of any kind of disemployment effect -- in other words, jobs being killed -- when the minimum wage went up," Dube said on the Real News Network. "The answers were somewhat surprising."

In her Economix blog post, Amherst professor Nancy Folbre gives a brief history of the minimum wage debate, saying the consensus -- that increasing the minimum wage kills jobs -- began to shift after 1994 when two economists, David Card and Alan Krueger, looked at New Jersey and Pennsylvania, which had relatively high and low minimum wages. The two economists found no real difference in fast-food unemployment between the areas.

The new study, as Dube told Real News Network, takes Card and Krueger's methodology and "generalize[s] and sharpen[s]" it, looking at a larger time period and at contiguous counties (pairs with differing minimum wage laws) across the nation. In some cases, the study found, a higher minimum wage actually promotes employment, since it reduces the employee turnover rate.

If enough businesses in a region follow a minimum wage rule, Dube added, the cost to employers can be offset by slightly higher prices. And there's no evidence, he said, that customers drive to neighboring cities or states to buy a burger in a lower-wage zone, where the price might be a few pennies less.

"All of these other channels are also at play, besides simply the so-called law of demand, that if wages rises, jobs must fall," he said.